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Pater Tenebrarum

Pater Tenebrarum

Pater Tenebrarum is an independent analyst and economist/social theorist. He has been involved with financial markets in various capacities for 39 years and currently writes economic and market analyses for independent research organizations and a European hedge fund consultancy as well as being the main author of the acting-man blog.

Articles by Pater Tenebrarum

Cryptocurrency Technicals – Navigating the Bear Market

4 days ago

A Purely Technical Market
Long time readers may recall that we regard Bitcoin and other liquid big cap cryptocurrencies as secondary media of exchange from a monetary theory perspective for the time being. The wave of speculative demand that has propelled them to astonishing heights was triggered by market participants realizing that they have the potential to become money. The process of achieving more widespread adoption of these currencies as a means of payment and establishing appropriate (and potentially more stable) exchange rates relative to state-managed fiat currencies is still underway.
At present the above mentioned process is still at a very early stage, hence speculative trading remains the dominant

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Gold Divergences Emerge

6 days ago

Bad Hair Day Produces Positive Divergences
On Friday the ongoing trade dispute between the US and China was apparently escalated by a notch to the next level, at least verbally. The Trump administration announced a list of tariffs that are supposed to come into force in three week’s time and China clicked back by announcing retaliatory action. In effect, the US government said: take that China, we will now really hurt our own consumers!  – and China’s mandarins replied: just you wait, we can hurt our consumers just as badly!

Left: the US administration releases details of its upcoming domestic consumer mistreatment measures; Right: China immediately shoots back with an image of the infamous ankle crusher which it

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Credit Spreads: Polly is Twitching Again – in Europe

10 days ago

Junk Bond Spread Breakout
The famous dead parrot is coming back to life… in an unexpected place. With its QE operations, which included inter alia corporate bonds, the ECB has managed to suppress credit spreads in Europe to truly ludicrous levels. From there, the effect propagated through arbitrage to other developed markets. And yes, this does “support the economy” – mainly by triggering an avalanche of capital malinvestment and creating the associated boom conditions, while “investors” (we use the term loosely) pile into ridiculously overvalued bonds that will eventually saddle them with eye-watering losses.
Readers may recall previous discussions of credit spreads in these pages –  on a whim we likened the demise

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In Gold We Trust, 2018

24 days ago

The New In Gold We Trust Report is Here!
As announced in our latest gold market update last week, this year’s In Gold We Trust report by our good friends Ronald Stoeferle and Mark Valek has just been released. This is the biggest and most comprehensive gold research report in the world, and as always contains a wealth of interesting new material, as well as the traditional large collection of charts and data that makes it such a valuable reference work for gold investors.
To provide a brief overview of the contents, here is the press release that accompanied the publication – the report is available for download via a link further below.

Nothing provides a feeling of material security comparable to the reassuring

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Gold and Gold Stocks – Conundrum Alert

May 22, 2018

Moribund Meandering
Earlier this week, the USD gold price was pushed rather unceremoniously off its perch above the $1300 level, where it had been comfortably ensconced all year after its usual seasonal rally around the turn of the year. For a while it seemed as though the $1,300 level may actually hold, but persistent US dollar strength nixed that idea. Previously many observers (too many?) expected gold to finally break out from its lengthy consolidation pattern, but evidently the intense patience training session for gold bugs is set to continue for a while longer.

Luckless gold bug surrounded by false starts, with his only friend, a startled moose. – Click to enlarge
The above mentioned seasonal rally started

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US Money Supply Growth Jumps in March , Bank Credit Growth Stalls

May 12, 2018

A Movie We Have Seen Before – Repatriation Effect?
There was a sizable increase in the year-on-year growth rate of the true US money supply TMS-2 between February and March. Note that you would not notice this when looking at the official broad monetary aggregate M2, because the component of TMS-2 responsible for the jump is not included in M2. Let us begin by looking at a chart of the TMS-2 growth rate and its 12-month moving average.

Annual Growth Rate of TMS 2, Feb 1996 – 2018 – Click to enlarge
The 12-month moving average nevertheless continued to decline and stands now at 4.1%.
The sole component of TMS-2 showing sizable growth in March was the US Treasury’s general account with the Fed. This is included

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The Capital Structure as a Mirror of the Bubble Era

May 9, 2018

Effects of Monetary Pumping on the Real World
As long time readers know, we are looking at the economy through the lens of Austrian capital and monetary theory (see here for a backgrounder on capital theory and the production structure). In a nutshell: Monetary pumping falsifies interest rate signals by pushing gross market rates below the rate that reflects society-wide time preferences; this distorts relative prices in the economy and sets a boom into motion – which is characterized by widespread malinvestment of scarce capital and over-consumption; eventually, the distorted capital structure proves unsustainable – interest rates begin to rise, and boom turns to bust. Many businessmen belatedly realize that the

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US Stock Market: Happy Days Are Here Again? Not so Fast…

April 21, 2018

A “Typical” Correction? A Narrative Fail May Be in Store
Obviously, assorted crash analogs have by now gone out of the window – we already noted that the market was late if it was to continue to mimic them, as the decline would have had to accelerate in the last week of March to remain in compliance with the “official time table”. Of course crashes are always very low probability events – but there are occasions when they have a higher probability than otherwise, and we will certainly point those out when we see them. Anyway, something else is evidently happening. Here is a chart of the SPX that shows the important trend-line which was so far successfully defended:

S&P 500 Large Cap Index, Dec 2016 – Apr 2018(see

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Claudio Grass on Cryptocurrencies and Gold – An X22 Report Interview

April 12, 2018

The Global Community is Unhappy With the Monetary System, Change is Coming
Our friend Claudio Grass of Precious Metal Advisory Switzerland was recently interviewed by the X22 Report on cryptocurrencies and gold. He offers interesting perspectives on cryptocurrencies, bringing them into context with Hayek’s idea of the denationalization of money. The connection is that they have originated in the market and exist in a framework of free competition, with users determining which of them will be winners and losers.

Claudio stresses that the decentralization of these currencies in particular is a crucial development. It cuts out countless middlemen, who are often protected by  state-granted privileges. The blockchain

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Short Term Market Signals

April 1, 2018

SPX Trendline Battle, Relative Strength in RUT
We reviewed the daily charts after yesterday’s close and noticed that the Russell 2000 Index, the NYA and transportation stocks all exhibited relative strength (the same holds actually for the DJIA), particularly vs. the FANG/NDX group. This is happening just as the SPX is battling with an extremely important trendline. As we pointed out before, relative strength in the RUT in particular served as a short term reversal signal ever since the sell-off started in February. The question is if this signal will continue to work. Here is an updated chart:

SPX Daily, RUT Daily and SPX-RUT Ratio, Dec 2016 – Mar 2018The SPX, the RUT and the RUT-SPX ratio. – Click to enlarge

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GBEB Death Watch

March 31, 2018

A Word on 1987 Analogies – Why Even Bother?
As our friend Dimitri Speck noted in his recent update, the chart pattern of the SPX continues to follow famous crash antecedents quite closely, but obviously not precisely. In particular, the decisive trendline break was rejected for the moment. If the market were to follow the 1987 analog with precision, it would already have crashed this week. Nevertheless, we wanted to show one more parallel in connection with the previously discussed “flight to fantasy” effect. As we mentioned when we posted this chart, the divergent DJIA/NDX peaks we could recently observe happened in 1987 as well. Here is a chart of the event:

DJIA and NDX Daily, May – Nov 1987Divergent highs and

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US Stock Market – How Bad Can It Get?

March 25, 2018

SPX, Quo Vadis? Considering the Crash Potential
In view of the fact that the stock market action has gotten a bit out of hand again this week, we are providing a brief update of charts we have discussed in these pages over the past few weeks (see e.g. “The Flight to Fantasy”). We are doing this mainly because the probability that a low probability event will actually happen has increased somewhat in recent days.

Robert Taylor and Deborah Kerr cast wary glances at their ancient (modern at the time) pre-Ogygian deluge Quotron. This sucker is going down honey! – Click to enlarge
This idea is mainly based on just a few technical data points. We concede these are not ”fully confirmed” at this stage, as a number of

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Incrementum’s New Cryptocurrency Research Report

March 23, 2018

Another Highly Useful Report
As we noted on occasion of the release of the first Incrementum Crypto Research Report, the report would become a regular feature. Our friends at Incrementum have just recently released the second edition, which you can download further below (if you missed the first report, see Cryptonite 2; scroll to the end of the article for the download link).

BTC Hourly, 16 – 23 March 2018(see more posts on Bitcoin, )BTC hourly (at the Bitstamp exchange). – Click to enlarge
Although BTC has been in a bear market since peaking in December, it still offers numerous short term trading opportunities due to its high volatility. We took the above snapshot of the hourly chart at around 8:00 am EST to

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US Stock Market – The Flight to Fantasy

March 22, 2018

Divergences Continue to Send Warning Signals
The chart formation built in the course of the early February sell-off and subsequent rebound continues to look ominous, so we are closely watching the proceedings. There are now numerous new divergences in place that clearly represent a major warning signal for the stock market. For example, here is a chart comparing the SPX to the NDX (Nasdaq 100 Index) and the broad-based NYA (NYSE Composite Index).

US S&P 500 Large Cap Index, NDX Daily and NYA Daily, Mar 2017 – 2018(see more posts on S&P 500 Large Cap Index, )The tech sector is always the last one to get the memo – we have dubbed this the “flight to fantasy” – and it is always seen near major market peaks. – Click

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Despondency in Silver-Land

March 16, 2018

Speculators Throw the Towel
Over the past several years we have seen a few amazing moves in futures positioning in a number of commodities, such as e.g. in crude oil, where the by far largest speculative long positions in history have been amassed. Over the past year it was silver’s turn. In April 2017, large speculators had built up a record net long position of more than 103,000 contracts in silver futures with the metal trading at $18.30. At the end of February of this year, they held their first net short position in 14 years (!) with silver trading at $16.43. This is highly unusual.  Here is a short term chart of the net positions of hedgers and large speculators:

Silver Futures, Apr 2011 – Mar 2018The net

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Stock and Bond Markets – The Augustine of Hippo Plea

March 13, 2018

Lord, Grant us Chastity and Temperance… Just Not Yet!
Most fund managers are in an unenviable situation nowadays (particularly if they have a long only mandate). On the one hand, they would love to get an opportunity to buy assets at reasonable prices. On the other hand, should asset prices actually return to levels that could be remotely termed “reasonable”, they would be saddled with staggering losses from their existing exposure. Or more precisely: their investors would be saddled with staggering losses. In this context we have noticed the emergence of a new consensus in the form of an invocation we hereby term the Augustine of Hippo Plea.

St. Augustine of Hippo, here seen doing saintly magic in his later years.

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US Equities – Mixed Signals Battling it Out

March 10, 2018

A Warning Signal from Market Internals
Readers may recall that we looked at various market internals after the sudden sell-offs in August 2015 and January 2016 in order to find out if any of them had provided clear  advance warning. One that did so was the SPX new highs/new lows percent index (HLP). Below is the latest update of this indicator.

S&P 500 New High Lows Percent, Feb 2015 – Apr 2018(see more posts on S&P 500, )HLP (uppermost panel) provided advance warning prior to the sell-offs of August 2015 and January 2016 by dipping noticeably below the zero line shortly before the selling started. – Click to enlarge
They briefly returned to positive territory after the first dip, and after a third or fourth

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Update on the Modified Davis Method

February 26, 2018

Frank Roellinger has updated us with respect to the signals given by his Modified Ned Davis Method (MDM) in the course of the recent market correction. The MDM is a purely technical trading system designed for position-trading the Russell 2000 index, both long and short (for details and additional color see The Modified Davis Method and Reader Question on the Modified Ned Davis Method).

The Nasdaq pillar… – Click to enlarge
As it turns out, the system was whipsawed, which is not a big surprise, as it attempts to minimize drawdowns (and it succeeds quite well at this task). Frank writes:

“My method was whipsawed – it sold 50% of Russell 2000 on Feb. 9 at 1477.84, then repurchased back to 100% on Feb. 16

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Strange Economic Data

February 24, 2018

Economic Activity Seems Brisk, But…
Contrary to the situation in 2014-2015, economic indicators are currently far from signaling an imminent recession. We frequently discussed growing weakness in the manufacturing sector in 2015 (which is the largest sector of the economy in terms of gross output) – but even then, we always stressed that no clear recession signal was in sight yet.
US gross output (GO) growth year-on-year, and industrial production (IP) – note that GO continues to be published with a lag of two quarters. As the upper half of the illustration shows, growth in manufacturing output turned negative in 2014 – 2015, while y/y growth in “all industries” GO fell to zero by Q3 2015. The lower half shows the

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US Equities – Retracement Levels and Market Psychology

February 23, 2018

Fibonacci Retracements  
Following the recent market swoon, we were interested to see how far the rebound would go. Fibonacci retracement levels are a tried and true technical tool for estimating likely targets – and they can actually provide information beyond that as well. Here is the S&P 500 Index with the most important Fibonacci retracement levels of the recent decline shown:
So far, the SPX has made it back to the 61.8% retracement level intraday, and has weakened a tad again since then. This is not yet conclusive evidence that this level will contain the rebound, but it is worth noting that the RSI made it back to just below 50 as well (the 40-50 area in the RSI is often an important demarcation in both

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The Future of Copper – Incrementum Advisory Board Meeting Q1 2018

February 18, 2018

Copper vs. Oil
The Q1 2018 meeting of the Incrementum Fund’s Advisory Board took place on January 24, about one week before the recent market turmoil began. In a way it is funny that this group of contrarians who are well known for their skeptical stance on the risk asset bubble, didn’t really discuss the stock market much on this occasion. Of course there was little to add to what was already talked about extensively at previous meetings. Moreover, the main focus was on the topic presented by this meeting’s special guest, Gianni Kovacevic.

Copperbank chairman Gianni Kovacevic – Click to enlarge
Gianni believes that oil has a bleak future as a fuel for transportation, as he expects the trend toward adoption of

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Why I Own Gold and Gold Mining Companies – An Interview With Jayant Bandari

February 16, 2018

Opportunities in the Junior Mining Sector
Maurice Jackson of Proven and Probable has recently interviewed Jayant Bandari, the publisher of Capitalism and Morality and a frequent contributor to this site. The topics discussed include currencies, bitcoin, gold and above all junior gold stocks (i.e., small producers and explorers). Jayant shares some of his best ideas in the segment, including arbitrage opportunities currently offered by pending takeovers – which is an area that generally doesn’t receive much attention, but seems to harbor quite a bit of potential.

Jayant Bandari at the at the Sprott Natural Resource Symposium in Vancouver in 2017. – Click to enlarge
The interview dovetails nicely with something we

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US Stocks – Minor Dip With Potential, Much Consternation

February 11, 2018

It’s Just a Flesh Wound – But a Sad Day for Vol Sellers
On January 31 we wrote about the unprecedented levels – for a stock market index that is – the weekly and monthly RSI of the DJIA had reached (see: “Too Much Bubble Love, Likely to Bring Regret” for the astonishing details – provided you still have some capacity for stock market-related astonishment). We will take the opportunity to toot our horn by reminding readers that we highlighted VIX calls of all things as a worthwhile tail risk play. Not only were we right, we were actually kind of double-plus right, with near perfect timing to boot. That doesn’t happen very often, so forgive us for enjoying this brief moment of Zoltar glory.
Sometimes it just works…

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Too Much Bubble-Love, Likely to Bring Regret

February 2, 2018

Unprecedented Extremes in Overbought Readings
Readers may recall our recent articles on the blow-off move in the stock market, entitled Punch-Drunk Investors and Extinct Bears (see Part 1 & Part 2 for the details). Bears remained firmly extinct as of last week – in fact, some of the sentiment indicators we are keeping tabs on have become even more stretched, as incredible as that may sound. For instance, assets in bullish Rydex funds exceeded bear assets by a factor of more than 37 at one point last week.

Bullish investors had every reason to feel smug in recent months. – Click to enlarge
And while there are a number of bears of varying degrees of prominence who have become cautious much too early (many of whom

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Punch-Drunk Investors & Extinct Bears, Part 2

January 20, 2018

Rydex Ratios Go Bonkers, Bears Are Dying Off
For many years we have heard that the poor polar bears were in danger of dying out due to global warming. A fake photograph of one of the magnificent creatures drifting aimlessly in the ocean on a break-away ice floe was reproduced thousands of times all over the internet. In the meantime it has turned out that polar bears are doing so well, they are considered a quite dangerous plague in some regions in Alaska. Alas, there is one species of bear that really is in danger of going extinct – only this one lives on Wall Street, or let us rather say, it vegetates on Wall Street these days.
Similar levels of complacency as were evident in  the AAII data were reflected in

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Punch-Drunk Investors & Extinct Bears, Part 1

January 17, 2018

The Mother of All Blow-Offs
We didn’t really plan on writing about investor sentiment again so soon, but last week a few articles in the financial press caught our eye and after reviewing the data, we thought it would be a good idea to post a brief update. When positioning and sentiment reach levels that were never seen before after the market has gone through a blow-off move for more than a year, it may well be that it means something for once.

Sloshed as we are… a group of professional investors prepares for a day of hard work on Wall Street. The tedium of a market that goes up a little bit every day, day in day out, is taking its toll. – Click to enlarge
Interestingly, the DJIA has fully participated in the

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Gold and Gold Stocks – Patterns, Cycles and Insider Activity, Part 2

January 5, 2018

Cycles and Sentiment
Another recurring pattern consists of the seasonally strong period in gold around the turn of the year, which is bisected by a mid to late December interim low in the gold price. An additional boost can be expected in January and Feburary from the strong seasonal uptrend in silver and platinum group metals as well (to see the seasonal PGM charts, scroll down to our addendum to this recent article by Dimitri Speck).

10 tola cast bar made in Switzerland for Asian markets. – Click to enlarge
Rallies in silver tend to be quite supportive for precious metals stock indexes, as silver stocks have an even higher beta than their gold brethren (note in this context that the XAU is the more broad-based

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Gold and Gold Stocks – Patterns, Cycles and Insider Activity, Part 1

December 31, 2017

Repeating Patterns and Positioning
A noteworthy confluence of patterns in gold and gold stocks is in evidence this year. At the close of trading on December 26, the HUI Index has given a (tentative) buy signal by completing a unique chart pattern, which is why we decided to briefly discuss the situation. As usual, things are not as straightforward and simple as they would ideally be, but there is always an element of uncertainty – one has to accept that as a given. Let us look at a chart illustrating one of said patterns:
This chart shows the gold price, the weekly net hedger position in gold futures (the inverse of the net speculative position), with the Fed’s December rate hikes in 2015, 2016 and 2017

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Season’s Greetings

December 29, 2017

A Difficult, but Also Exciting Year…
Dear Readers,

Another year is coming to a close, and the team at Acting Man wishes you and your loved ones a Merry Christmas / Happy Holidays and all the best for the new year.
You have probably noticed that your main scribe was a lot less prolific this year than he normally tends to be; unfortunately, we were held back by health-related issues. We remain among the quick though and will try to increase our posting frequency again. After all, it is not as though nothing interesting were happening.

We felt a bit like Santa feels in this picture this year, but we are recovering. Santa recovered too, just look at the stock market at the end of the year for evidence.

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How the Asset Bubble Could End – Part 2

December 23, 2017

Contradictory Signals

Special antennae that help traders catch upcoming opportunities. Available from the same outfit that sells the soup-cooling spoon (Acme Inc). – Click to enlarge
There is just one more positioning indicator we want to mention: after surging by around $126 billion since March of 2016, NYSE margin debt has reached a new all time high of more than $561 billion. The important point about this is that margin debt normally peaks well before the market does. Based on this indicator, one should not expect major upheaval anytime soon. There are exceptions to the rule though – see the caption below the chart.

NYSE Margin Debt, 1965 – 2017A new all-time high in NYSE margin debt: this is in line with

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